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EntrepreneurshipChapter 3 Creating Business from Opportunity

Entrepreneurship, 2nd EditionMariotti and Glackin with NFTE 2010 Pearson Education, Upper Saddle River, NJ 07458.All Rights Reserved.*

The Business DefinitionThe offerwhat will the business offer the customers?Target marketwho will it serve?Production and delivery capabilityhow will it provide the products & services it sells?


Types of BusinessManufacturingmakes tangible products & sells them through distributors or directly.Wholesalebuys in bulk from manufacturers & sells smaller quantities to retailers.Retailsells individual items to consumers.Servicesells time/expertise to consumers.


Defining an OrganizationCore ValuesMissionVisionCulture


Organizational Core BeliefsBeliefs entrepreneurs use to guide organizations.Example: My restaurant will support local organic farmers.

Core beliefs affect:materials used in productionprices chargedhow customers are treated


Mission StatementA concise statement ofTarget customersProducts & servicesMarkets servedUse of technologyImportance of public issues & employeesFocus on survival, profitability, & growth


VisionOverall view of desired company future stateBuilt upon core values & beliefsCompelling across the organizationEmployees need to be empowered to fulfill it


CultureLargely shaped by leadershipCore values in actionIncludesRisk tolerance & innovationOrientation with respect to people, teams, & outcomesAttention to detailCommunication norms


Routes to Finding Opportunities Self- or group-developed business ideasResearch on hot business ideas or growth areasProduct or service idea first & search for a market or business second


Factors of Competitive AdvantageQualityPriceLocationSelectionServiceSpeed/turnaround


What Is Your USP?Unique Selling Propositionwhat attracts customers away from the competition and toward a business?

Compare what your business offers to what competitors offer.Are you at a cost advantage or disadvantage?


Competitive Analysis

Your Company Competitor #1 Competitor #2 Competitor #3 QualityPriceConvenienceSelectionServiceTOTAL


Define the Unit of SaleManufacturingone order Wholesalea dozenRetailone item Serviceone hour of time or one completed task Combinationaverage sale per customer


Average Sale Per Customer

Average sale per customer Average cost of sale per customer Average gross profit per customer


Unit of Sale as a Combination of Different Items


Cost of Goods Sold (COGS)

COGS = cost of labor and materials required to make one additional unit COSS (cost of services sold) = cost of labor and materials required to provide one additional unit of service


Economics of One Unit (EOU)Method for seeing if a business can be profitable

If one unit of sale is profitable, the whole business is likely to be profitable.

Selling price per unit COGS per unit = Gross profit per unit


Economics of One Unit (EOU) Manufacturing


Economics of One Unit (EOU) Wholesale


Economics of One Unit (EOU) Retail Business


Economics of One Unit (EOU) Service Business


Economics of One Unit (EOU) Example


The Entrepreneurs Strategy: Start a business with a profitable EOUHire others to create the unitsIncrease volume of units being soldStart new businesses or expand opportunities

Result: The entrepreneur creates jobs and wealth.

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